Ramsay Health Care: 1Q trading update - moving in the right direction

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
14 November 2022, 8:00 AM
Sectors Covered:

  • Ramsay Health Care's (ASX:RHC) 1Q trading update highlighted improving conditions across all markets, with revenue up 6.7%, as activity levels continue to improve in line with declining COVID cases, with positive momentum continuing into Oct and Nov.
  • Profitability also improved throughout 1Q, albeit is still down on pcp, despite the lack of COVID-related government revenue and cost support in France, with COVID costs declining and favourable negotiations with health funds more reflective of labour shortages and inflationary pressures.
  • Management is confident of a more normalised work force into CY23, with recruitment and retention efforts strong, absenteeism down and turnover slowing.
  • While FY24 is still targeted as a “normal” trading year, the gradual improvement in activity and earnings is encouraging and suggestive of improving momentum.
  • We have adjusted our FY23-25 earnings, with our price target increasing to (login to view). ADD retained.


RHC provided a 1Q trading update, noting improvement across all geographies as COVID cases decline, with the company well positioned for volume growth over the medium to long term.

Revenues increased 6.7% to A$3.5bn, while underlying EBIT fell 13% to A$172m, with margins down 113 bp to 5%.

Analysis - key takeouts across the key geographies

APAC - (revenue +3.6% A$1.42bn; EBIT 0.2%, A$137m; margin -37bp, 9.6%); improved activity, fewer cancellations and absenteeism, as COVID cases declined; admissions per workday were flat on pcp (+3.2% vs 1QFY20), but the trend improved across 1Q and into Oct.

The mix remains unfavourable (ie high day admissions, +4.3% vs overnight +0.4%); COVID-related costs were elevated (A$58m vs A$55m on pcp), but are declining (Jul A$39m; Sept A$6m; Oct lower), although expected to have some level of impact going forward; impact from Queen Elizabeth II’s passing estimated cA$7m.

UK - (revenue +5%, GBP147m; EBIT -2.1%, A$4.1m; ex A$6.2m Elysium gains); improved progressively through 1Q (Jul -2%; Sept +7%) as COVID cases declined and restrictive measures relaxed; activity levels continuing to improve in Oct, but the northern hemisphere is just moving into winter.

COVID-related costs were GBP5.7m with 3,270 patient cancellations, but improved m/m (GBP1.5m and 870 in Sep, respectively); waiting lists continue to increase with management strategising with NHS on potential solutions.

EU - (revenue +7.8%, A$1.07bn; EBIT -73%, A$11m; margins +302bp, 1.1%); revenue underpinned by growth in all services in France and the Nordics (+20%; mix toward primary care and specialist clinics), with underlying revenue up 4.9%.

Activity levels in Oct continue to improve, with COVID cases at “manageable” levels”; profit was impacted by inflation, higher personnel costs, and lower government COVID funding (down EUR14m); the French government has extended the revenue guarantee until 31-Dec-22, which should provide stability to the acute hospital business.

Forecast and valuation update

FY23-25 underlying earnings are adjusted higher, 2.4%/4.0%/3.8%, respectively, reflective of improving volumes and lower COVID-related expenses. 

Our blended DCF, PE, EV/EBITDA price target moves to (login to view).

Investment view

While the operating environment remains unpredictable and dynamic, with COVID, doctor/patient behaviour, inflation and workforce issues all defining the earnings profile, higher activity and lower costs are suggestive of improving momentum.

Price catalysts

AGM 29-Nov-22.


  • PHI vagaries; COVID impacts.
  • Weaker volumes.
  • Margin compression.
  • Regulatory changes.
  • Slower Capio integration.

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    Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.



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